Earnings Call Transcript
Casella Waste Systems Inc (CWST)
Earnings Call Transcript - CWST Q2 2024
Operator, Operator
All right. Good morning, and thank you for joining us on the call today. Today, we will be discussing our second quarter 2024 results, which were released yesterday afternoon. Here with me today are John Casella, Chairman and Chief Executive Officer of Casella Waste Systems.
John Casella, Chairman and CEO
Hello, operator? Were you going to say something? No? Okay. Sorry, Charlie, go ahead, please. Thanks, Charlie. Good morning, everyone, and welcome to our second quarter 2024 conference call. I will begin today's remarks highlighting our strategic execution and continued growth with brief comments on our results. Brad and Ned will then go into more details on our financials and strategies. First, I'd like to welcome our new team members to Casella, who joined us from several recent acquisitions. Yesterday afternoon, we announced another major step in our company's growth strategy with the acquisition of LMR Disposal and Whitetail Disposal, two collection companies in the Mid-Atlantic that strongly align with our core operating strategies. These valuable operations immediately offer us additional growth in new markets and more density in existing. We're very excited to begin serving our new customers and continue executing against our growth strategy in these attractive markets. We have also closed on three other tuck-in acquisitions this year; two in July and one in May. I'd like to provide another welcome to all of our team members who have come on board. These five acquisitions reflect our ability to continue to grow the business through a disciplined approach. Our team remains focused and balanced across integration efforts, our core business, and on future opportunities. Moving to our results, both revenue and adjusted EBITDA reached all-time highs on a quarterly basis. This milestone reflects the hard work and dedication our team has put into building the business. While there are a couple of unexpected items that weighed on the second quarter results noted in our press release, our year-to-date performance is consistent with our plans for the first half of the year. Looking ahead, we are well-positioned to carry the growth momentum forward over the second half of the year. Shifting to a few of our key strategies and performance of our operations, starting with our landfills. Volumes were down year-over-year. MSW volumes were, again, stable in the quarter, but lower C&D and special waste tons continued to present a bit of a headwind. However, this is largely a result of the upcoming closure of a large third-party C&D landfill in New York at the end of the year. More importantly, we had expected this EBITDA and margin pressure to begin the year. It has been factored into our guidance, and we believe the market will return to a more steady state next year. And I want to stress that this has not shifted our strategy in any way. We are steadfast in prioritizing long-term returns and not allowing any short-term impacts to sway the focus. Our average price per ton at the landfills demonstrates this approach as we continue to improve the quality of our inbound waste stream. On the collection side, results continue to show positive returns from our strategic investments in this line of business. Our frontline development route enhancements and fleet investment programs are highly successful. In our base business, we expanded adjusted EBITDA 130 basis points year-over-year. Sean Steves and his team have developed a proven model that is delivering strong operating performance. But it's a collaborative approach, starting with our human resource team and their efforts around recruitment, our CDL and diesel mechanic programs to help set our frontline team up with the necessary job skills and safety training for success. As a result, employee turnover and safety levels are trending positively. From an operational standpoint, our fleet automation, route conversion, and onboard computer plans are driving higher productivity levels and improving operating cost metrics. We are deploying this model across our footprint and believe there's a long runway of opportunity ahead, especially with the acquisitions we've completed over the last year or more. While a lot of coordination and planning is involved, repeatable execution is part of our success. In resource solutions, we, once again, posted very strong results in this segment, led by the performance of our recycling operations. While our average commodity revenue per ton was up 50% year-over-year, much of this value is shared with our customers, given our balanced model that focuses on steady returns while reducing commodity price volatility. Contributions from the Boston MRF drove most of the success in the quarter. On the national accounts side, this business also posted a bit of growth in the quarter and remains a key part of our overall strategy of providing superior differentiated services, which is something I'd like to highlight for a minute. As you know, we've talked about a sales strategy targeting larger commercial and industrial customers. This strategy is not fully apparent when looking at our Solid Waste business alone, as positive volume growth in national accounts offset some of our Solid Waste volume decline. This dynamic is more reflective of our strategy where we are focused on growing our larger, profitable National Account customers and revenue as compared to some of the less profitable Solid Waste revenues we are shedding. Wrapping up, we are executing against our growth strategy and are well-positioned for the remainder of this year. Our core operating programs are intact. Our project development pipeline offers a long runway for profitable growth, combined with our acquisition strategy that has expanded our operating footprint to 10 states, we are poised to continue delivering value. And with that, I'll turn it over to Brad to go through some details on the financials.
Brad Helgeson, CFO
Thanks, John. Good morning, everyone. Revenues in the second quarter were $377.2 million, up $87.5 million or 30.2% year-over-year with $70 million from acquisition rollover and $17.5 million from organic growth or 6%. Solid Waste revenues were up 35.1% year-over-year with acquisition growth of 30.7%, price up 5.7%, and volumes down 1.8%. Within Solid Waste, price in the collection line of business was up 6.2% and volume down 1.2%. In the front load commercial business, price was up 7.3% and volume up 1.1%, while volume declines in the quarter were concentrated in residential and roll-off as we worked to improve the quality of revenue and margins in those businesses. Revenues in the Disposal line of business were up 2.3% year-over-year with transfer revenue up 9% and landfill revenue down 5.2%. Landfill price growth of 5.2% was offset by lower volume of 10.4%. MSW volumes into the landfills were down slightly in the quarter and essentially flat over the first half of the year, but we saw continued weakness in C&D and special waste volumes. As we've discussed, the C&D market is currently under pressure as certain competitors in the Metro New York market have aggressively pursued volumes. We expect this dynamic to continue through the end of the year, but it should abate in 2025. In the case of special waste volumes, we have a deep sales pipeline, but these waste streams are often project-based, and thus, timing is inherently difficult to predict. The average price per ton at the landfills was up 10.8% year-over-year, reflecting a mix shift away from lower priced streams as we help align on price in the face of volume pressure and prioritize preserving our valuable airspace. Resource solutions revenues were up 15.4% year-over-year, with recycling and other processing revenue up 31.1% and national accounts up 6.9%. Within processing operations, price was up 5.5%, driven by an increase of over 50% in average commodity revenue over Q2 last year. Of course, most of the benefit of these higher commodity prices is shared with our customers under our contract structures designed to mitigate risk. So the net benefit to our revenue in the quarter was only $1.1 million. We expect favorable year-over-year comps to continue through 2024 as recycled commodity markets remain firm and current prices are well above second half of last year. Processing volume was up 12.7% with higher recycling volumes benefited by production enhancements at the Boston MRF. Within national accounts revenue, price was up 3.7% and volume was up 3.4%. Acquisitions contributed 4.5% across the resource solutions segment. Adjusted EBITDA was $91.6 million in the quarter, up $19.4 million or 26.9% year-over-year, with $18 million from acquisition rollover. Adjusted EBITDA margins were 24.3% in the quarter, down 60 basis points year-over-year. Bridging the year-over-year change in the EBITDA margin, a few specific headwinds drove the decline in the quarter. Lower volume at the landfills, particularly C&D; higher landfill operating costs, including leachate with the wet weather in New England; and employee separation costs together represented over 200 basis points of margin headwind. The rest of our business performed well and in line with plan. Our pricing programs continued to outpace inflation. The Boston MRF contributed approximately $2.5 million of adjusted EBITDA growth in the quarter, and we benefited again from higher recycled commodity prices and ongoing cost efficiencies in the collection business. Acquisitions were also a modest tailwind to consolidated margins in the quarter. Stepping back from the quarter, adjusted EBITDA margins are up 40 basis points year-to-date, and our outlook for margin expansion for the full year, as reflected in our guidance, is unchanged. Cost of operations in the quarter was up $57.5 million year-over-year, with $48 million of the increase from acquisitions and $9.5 million from the base business. So, on a same-store basis, cost of operations was down 60 basis points as a percentage of revenue year-over-year. Our effective tax rate was 35.1% in the quarter as certain non-deductible expenses and discrete items pushed the rate above our statutory rate of approximately 27%. The effective rate is projected at approximately 35% for the year, but we expect to pay less than $5 million in cash taxes. Adjusted net income was $12.5 million in the quarter, down $6.3 million compared to prior year, with the accelerated amortization of identifiable intangibles associated with acquisitions weighing on earnings. Intangible amortization was up $8 million year-over-year, while D&A associated with acquisitions was over 26% of acquired revenue as compared to approximately 12% for our base business. GAAP net income was $7 million in the quarter, up $1.5 million compared to prior year, impacted by higher D&A and acquisition-related expenditures, but comparing favorably to the charges for the termination of bridge financing and a legal settlement in Q2 last year. Net cash provided by operating activities was $79.8 million for the first six months of 2024, down $3.4 million year-over-year. This was driven by higher cash outflows from net changes in assets and liabilities, including AP timing in the first quarter and slower AR collections at our businesses acquired from GFL in the Mid-Atlantic. Overall, DSO at June 30 was 38 days, which comprises 55 days at the former GFL operations and 32 days for the rest of Casella's AR. As a reminder, the acquired businesses were a carve-out from GFL, so the collections were largely not in our control until we transitioned AR and customer data onto our systems, which was completed in Q2. We'll focus on working this AR balance down in the coming months, which represents a cash flow opportunity going forward, but this has certainly been a drag on reported cash flow year-to-date. Adjusted free cash flow was $39.5 million in the first six months compared to $47.9 million in the first half of 2023, driven by the working capital dynamics that I just discussed and higher capital expenditures year-over-year. I'll note that adjusted free cash flow year-to-date represents less than 30% of our full year guidance as compared to nearly 40% generated in the first half last year. However, considering the working capital movements reflected in the first half number this year, we believe that we are very well positioned heading into the second half from a cash flow standpoint. As of June 30, we had $1.05 billion of debt, $208.5 million of cash and available liquidity of $481 million. Our consolidated net leverage ratio for purposes of our bank covenants was 2.63x. Our liquidity and leverage profile have enabled us to be opportunistic in executing on our M&A pipeline as we funded our recent acquisitions, including LMR and Whitetail Disposal, primarily with cash on hand. We currently have $75 million now drawn on our revolver with approximately $225 million of remaining liquidity and pro forma leverage is less than 3x. As we announced in our press release yesterday, we've updated our guidance to reflect developments in the business to date, including acquisitions closed. We're raising our ranges for revenue and adjusted EBITDA by $40 million and $10 million, respectively, at the midpoints, primarily reflecting the anticipated contribution from acquisitions. We reaffirmed guidance for adjusted free cash flow with the expected contribution from acquisitions, offset by the cost of financing and a conservative outlook on AR collections with newly acquired businesses. We lowered our ranges for the GAAP metrics, net income and net cash provided by operating activities due largely to higher acquisition-related expenditures. Reconciliations of our guidance on these GAAP metrics to their related non-GAAP metrics are included in the press release. Regarding key assumptions underlying guidance, we now expect Solid Waste volume to be down 1% to 2%, reflecting continued softness in landfill volumes as well as lower residential collection and roll-off volumes as we prioritize customer profitability over volume growth. However, our overall organic revenue growth assumptions remain unchanged, reflecting an expectation that Solid Waste price growth will be in the upper end of our anticipated range of 5% to 6% for the year. And with that, I'll turn it over to Ned.
Ned Coletta, President
Thanks, Brad, and good morning, everyone. As mentioned in our earnings release yesterday afternoon, we've completed five acquisitions year-to-date that are expected to contribute over $100 million of annualized revenues. Nearly all of this acquired revenue is in our Mid-Atlantic region, where we see tremendous opportunity to build scale, further grow our business through our differentiated service offerings. We are excited about further building our business in the Mid-Atlantic, and these bolt-on acquisitions fit our long-term strategy well. Whitetail and LMR are in adjacent secondary markets with high-quality operations and a balanced mix of commercial, subscription, residential, municipal, and industrial customers. Further, we're building operational density, which will help to drive additional efficiencies in our collection operations. These acquired businesses have well-established customer and community relationships that present great opportunities for organic growth, including through our resource solutions offerings. There is potential for us to internalize more recycling volumes into our Mid-Atlantic recycling facility, while at the same time, using our targeted sales approach at larger industrial, institutional, and multi-site commercial customers who demand heightened sustainability services. As always, our near-term focus is welcoming our new employees and customers to Casella while integrating the operations and systems to ensure a smooth transition. Looking broadly at our M&A strategy, our acquisition pipeline remains very active with lots of opportunity in strategic areas across our 10-state footprint. Ongoing dialogues and diligence efforts set us up well for potential additional acquisitions in late 2024 into early 2025. Turning to our development projects. Investment in our rail-served McKean, Pennsylvania landfill is nearly complete. We received our first test loads at the site in the second quarter that allowed us to test equipment, processes, and conduct training. We have not included any incremental contribution from the site in our forecast or guidance. And as previously discussed, this site provides a solid long-term risk management strategy to preserve our flexibility in the Northeast. As such, this won't be a meaningful driver of near-term volume growth, and the site will be operated under the same return-driven focus that we apply across all opportunities. An example of this return-driven focus is the continued strong performance of our Boston recycling facility. Results from the upgraded equipment at this facility are accretive to consolidated adjusted EBITDA and margins and clearly demonstrate our approach to sustainability investments being both environmentally and economically balanced. We're excited about the technology and equipment upgrade at our Willimantic Connecticut recycling facility planned for the second half of 2024. We kicked off that project a few weeks ago, and we are evaluating other opportunities to advance our circularity infrastructure. Our RNG projects are also progressing. The facility at Juniper Ridge landfill faced some initial start-up delays from our third-party partner that has moved the opening date back to this fall. As a reminder, we have invested nothing into these projects, and we're receiving a royalty payment from the sale of gas and RINs, which we believe is the most appropriate risk-mitigating path for us. Looking ahead, the three Waga-led projects continue to advance with commercial operations expected in late 2025. Like John and the rest of our team, I would like to again welcome our new employees to Casella. We pride ourselves on our strong culture and our value system. We're very excited about the opportunities ahead to drive continued profitable growth and shareholder value. And with that, I'd like to turn it back to the operator for questions.
Operator, Operator
The first question comes from Tyler Brown with Raymond James. Your line is now open.
Tyler Brown, Analyst
Hi, good morning, guys.
John Casella, Chairman and CEO
Good morning.
Tyler Brown, Analyst
Good morning, folks. Can we just start maybe by talking a little bit about the $3 million in leachate? So I've been reading some articles about all the flooding in Vermont. So I'm assuming that that is the issue. But I just want to be clear, this wasn't systemically higher leachate costs because of PFAS?
John Casella, Chairman and CEO
No, not at all. Clearly, additional volume because of all of the wet weather affected four of our facilities, Tyler. So very significant flooding in Vermont, a bit into New Hampshire, and a bit in Maine. Less so in New Hampshire and Maine; very significant in Vermont and probably at Vermont and New Hampshire more so in... A little in New York too. Yes. And a little upstate New York, where Clinton County facility as well. So, additional volumes because of the wet weather, and also a little bit further in transportation in some cases because of the amount that we had. We had to go to new facilities, different facilities.
Tyler Brown, Analyst
Okay. Yes, that's very helpful. Brad, looking at the EBITDA, the guidance increased by about $10 million. I assume that your activity in M&A will contribute in the second half of the year. You experienced higher leachate costs, but it seems like commodity prices are on the rise, even if that's not a major influence. Can you explain the $10 million increase? Was it entirely due to acquisitions, or was there also a core growth component?
Brad Helgeson, CFO
Yes, it's effectively all from acquisitions. We're more or less on track with our guidance prior to the acquisition. So I think for all intents and purposes, you can assume the $10 million is attributable entirely to the acquisitions, and that's a little less than six months' contribution, with one of the deals closing on July 1 and one closing on August 1.
Tyler Brown, Analyst
Okay. And then, just from a modeling perspective, just how much revenue should we expect from M&A in '24? And then basically, how much is already slated for '25?
Brad Helgeson, CFO
For the acquisitions we just announced, they represent about $115 million in annual revenue. The increase of $40 million in our guidance for this year is primarily due to those acquisitions. The rollover would be the variability around that.
Tyler Brown, Analyst
Yes, so we already have some revenue rolling into 2025. Could you provide a bit more detail on Whitetail and LMR? Ned, you touched on this, but can you discuss the revenue mix? What are their exposure levels in collections? Do they possess strong transfer assets? Are there plans to internalize both recycling and landfill waste?
Ned Coletta, President
Thanks, Tyler. Neither of them have transfer assets today. LMR is a business that's in Northwestern New Jersey, just across the border from our Pennsylvania operations. Some overlap, some adjacencies, well-mixed business. The real internalization opportunity will be getting recyclables into the recycling facility we acquired from GFL last year that we're in the process of upgrading as well. Whitetail is a little bit more of a significant business. It's headed down towards Allentown, down towards Philadelphia area in the secondary market to operate across three operations and a very well-run business across subscription, residential, municipal, commercial, industrial segments. It's been a fast-growing business that has a very good reputation in those markets, high-quality service. As we look to that business, once again, a great opportunity to vertically integrate to our recycling operation in Pennsylvania. Short-term, we're not looking to internalize either of them from a waste standpoint, although mid-term, we could look to do so to McKean if we chose to. Both of them are more of extensions of the platform, some level of overlap and a continuation of the strategy we started last year.
Tyler Brown, Analyst
Okay, perfect. My last question is about a large transaction announced on Long Island by one of your competitors. I'm curious about the competitive dynamics there. Does this impact the C&D situation in a negative or positive way? I'd appreciate any thoughts on that. Thanks, everyone.
John Casella, Chairman and CEO
From a practical perspective, we were not receiving any of the MSW from the principals involved in that transaction. Therefore, it does not hold any significance from a disposal standpoint.
Ned Coletta, President
Yes. Almost all the municipal solid waste in Long Island is processed at the Covanta facilities. That transaction involved them sending their construction and demolition debris under a long-term agreement to Ohio. Therefore, this does not significantly alter the flow of construction and demolition debris in the Northeast.
Tyler Brown, Analyst
Okay, perfect. Thanks, guys.
John Casella, Chairman and CEO
Thank you.
Ned Coletta, President
You're welcome, Tyler.
Operator, Operator
And our next question comes from Brian Butler with Stifel. Your line is open.
Brian Butler, Analyst
Good morning. Thank you for taking the question.
Ned Coletta, President
Good morning.
Brian Butler, Analyst
On the deals, could you give a year-to-date spend on that? or do I need to wait till you report the third quarter?
Ned Coletta, President
It's not something we're laying out this time. So, you'll see in our third quarter Q, the amalgamation of all acquisitions.
Brian Butler, Analyst
Okay. I guess maybe another way to ask is, when you look at the guidance kind of going up the $40 million and $10 million, so kind of an implied EBITDA margin of 25%. When you think of that rolling into 2025, how should we think about those margins improving as you integrate those assets?
Brad Helgeson, CFO
Yes. Brian, it's Brad. So, the increase in guidance of $10 million and $40 million, that's predominantly the acquisitions, but not entirely. I would say the margins for the business pre-synergy are probably closer to 20%. And we'll, of course, look to work those up over time as we put in place our operating strategies and, where possible, get some synergies out of the overlap.
Brian Butler, Analyst
Okay. And then, maybe on the commercial side of the business on collection. Have you been seeing service intervals still outpacing service decreases?
Ned Coletta, President
Yes, we're absolutely continuing to see strength in the commercial side of the business. We have volume increases and our price remains quite strong across the entire business. It's probably the brightest spot in our entire collection business today. We really do differentiate ourselves with our offerings and continue to gain new business, especially with higher end, higher profile customers.
Brian Butler, Analyst
Okay. One last question on modeling. You mentioned the tax rate is expected to be 35% for '24, but only $5 million in cash tax. How should we think about '25 regarding NOLs that could roll over and affect the tax rate for next year?
Brad Helgeson, CFO
Yes. We're going to use up our pre-2017 NOLs this year, and then we're going to roll into our post-2017 tax law change NOLs starting next year. So, from a cash perspective, those are worked a little bit differently than the pre-2017 in that they only shield 80% of federal cash tax. So, all else being equal, we'll begin to pay federal cash tax probably next year, but at a relatively low level. Again, primarily shielded by the NOLs for several years after that.
Ned Coletta, President
But on the income statement, we'll revert more to the normalized.
Brad Helgeson, CFO
Yes. So, on the income statement, 35% this year. I think as our pretax income continues to grow, that number will naturally kind of come down towards our statutory rate of 27%. Exactly where? It's too early to say for 2025. But 35% should be the high watermark from a book perspective.
Brian Butler, Analyst
Okay, great. I'll get back into the queue. Thank you.
Brad Helgeson, CFO
Thanks, Brian.
Operator, Operator
And the next question comes from Jerry Revich with Goldman Sachs. Your line is open.
Adam Bubes, Analyst
Hi, this is Adam Bubes with Goldman Sachs. Good morning, everyone.
Brad Helgeson, CFO
Good morning.
Adam Bubes, Analyst
Really strong growth in the quarter and looks like the M&A pipeline continues to be robust. Is it possible to sort of isolate the margin trajectory on the core legacy operations versus acquired businesses? I'm wondering if the price/cost spread looks different this quarter for your core operations versus acquired assets.
Brad Helgeson, CFO
Hey Adam, it's Brad. The price/cost spread for the existing business has been pretty consistent, over 100 basis points in the base business. In the acquired businesses, we intentionally take a more cautious and gradual approach with price increases. So the effect of our pricing programs is really felt in the base business. One number that John mentioned in his prepared remarks that I think gives a good idea of the underlying margin trend that's happening in the business kind of setting aside the one-time issues, I'll call it, we've had in the second quarter, is the collection business was up, excluding acquisitions, 130 basis points on EBITDA margin year-over-year in the quarter. So that's very much the underlying trend as kind of the puts and takes come in over the top of it.
Adam Bubes, Analyst
Got it. And then, how much of the lost C&D volumes this year do you expect to get back in 2025? Just conceptually, should we expect outsized volumes in 2025 as the competitor landfill comes offline?
Ned Coletta, President
I think from our vantage point, nothing ever shifts on a dime, but that capacity will be out of the market at Brookhaven and Long Island, and there will be less outlets to go to. So, some of our long-term customers who shifted to that site as they were looking to fill it up, we hope to get back into our system. As with everything, transportation is always the complexity to establish transportation lanes and get that waste back. So, right now, it's a little early to say if it ramps Q1 or through the spring, but we're hopeful that those volumes do return to us in a headwind of May.
Adam Bubes, Analyst
And then, one last one on margins. It looks like normal seasonality is for margins to be up 160 basis points 3Q versus 2Q, given the unexpected expense items in 2Q, should we be expecting margins to be 80 basis points ahead of normal seasonality in 3Q as those roll off? I know there could be some other moving pieces with McKean, Willimantic. So, any puts on the sequential margin trajectory?
John Casella, Chairman and CEO
Yes. I would say there's two things going on that I would highlight. One is the point you made. We had a couple of 'one-time items' in the second quarter that Q2 to Q3, that should help the sequential margin trend. But then, overall, kind of taking a step back, the mix of the business is shifting geographically, where as we move down the Eastern Seaboard, the business is going to have less seasonality to it. It's going to have relatively more collection relative to landfill. And then those factors will lead to a smoother quarter-to-quarter margin trend than we've seen historically. So, exactly how that plays out, it's probably hard to predict for this third quarter. It's hard for you to predict for this third quarter. But those are really the two kinds of factors as you think about it.
Adam Bubes, Analyst
Thanks so much.
Operator, Operator
And the next question comes from Stephanie Moore with Jefferies. Your line is open.
Stephanie Moore, Analyst
Hi. Good morning. Thank you. I was hoping you could touch a bit on maybe some of the inflationary pressures that you're seeing and how that's trended as the year has progressed, you know labor trends, repair, maintenance and the likes of that as well as maybe some of the other self-help initiatives that you have in place that are helping to offset some of the cost pressures? Thanks.
Ned Coletta, President
Great. So, I think inflation has been a little stickier than we had predicted at the beginning of the year. And we're seeing trends, generally, flattish through the spring, not decreasing. What we're seeing inflation hang north of 5% roughly in our business. We have seen labor tail off a bit over the last year plus, and we've seen a lot of stability in our labor force and our training programs, our recruiting programs, everything we're doing to try to attract great people to our organization are helping there. And the fight for talent does seem to be a little bit lower today. But there are some areas that are really quite sticky. On the maintenance side, parts, tires, outside repairs. On the landfill side, almost everything to do with landfills, especially on the capital side we've seen heightened inflation remain in the business. As we've talked about a lot of times in the past, so, we can be nimble from a pricing standpoint as an organization. And as we look at these inflation trends through this spring, they are a little bit higher than we expected, and we're starting to course correct on certain segments of the business with our pricing programs and advancing a bit more price to the second half of the year, which we hope gets that spread a little bit stronger through the last five months of the year.
Stephanie Moore, Analyst
Great, thank you for the insights. Regarding your recycling business, I’m interested to know if you are considering any investments or potential expansions, especially with the possibility of EPR being implemented in some Northeast states. Have you thought about making any changes to your recycling operations if EPR is indeed put into effect?
John Casella, Chairman and CEO
So, a couple of things there. I think that from a practical standpoint, we continue to invest in the infrastructure, similar to what we did in Boston. Higher quality, more significant throughput. We're doing the same thing with our Willimantic facility, and then we'll be doing the same retrofit of our facility in Pennsylvania as well. So, we'll continue to invest in the infrastructure. As the government relations side of the business really understands what the drivers are going to be from an EPR standpoint, each state is somewhat different. There's a little bit of activity in a couple of states now and government relations will continue to stay abreast of what's going on there. And certainly, we'll be involved in trying to help shape that.
Ned Coletta, President
Yes. And I think from a public policy standpoint, we would like to see more recycled content. Legislation versus EPR, that there has been 30-plus years of substantial investment in recycling infrastructure across the country and Casella has invested significantly. So, setting up parallel recycling systems really don't yield a lot of benefit. We've seen that over the years in bottle bill states. You're really just creating a new tax on society versus driving additional sustainability or circularity. So, from our vantage point, I think the recycled content movement is much more exciting. It could have a very positive impact on the industry, additional investment in, really the environment, which is what we're all trying to do.
Stephanie Moore, Analyst
Really helpful. Makes sense. Thanks, guys.
John Casella, Chairman and CEO
Thank you. You're welcome.
Operator, Operator
And the next question comes from Faiza Alwy with Deutsche Bank. Your line is open.
Faiza Alwy, Analyst
Hi. Good morning. Thank you so much.
Ned Coletta, President
Good morning.
Faiza Alwy, Analyst
So, I wanted to ask about C&D volumes, right? You've mentioned the impact from the landfill closures. I'm curious if there is also a macro overlay because a bunch of the other companies have been talking about soar volumes generally. So, just curious if you're seeing a macro impact there as well and if volumes were essentially in line with your expectations?
Ned Coletta, President
In the Northeast, our business relies less on construction activity, so we don't experience the significant fluctuations that come with construction cycles. We tend to operate in a more stable manner. However, we have noticed a decline in spending on large construction and infrastructure projects in the region, which is reflected in our special waste streams. Specifically, projects involving contaminated soil and cleanups have decreased over the past 12 to 18 months. The timing for these projects can be unpredictable, but our project pipeline is strong, with several funded projects awaiting commencement that have not started in the last six months. There is pent-up demand, but due to the current economic slowdown and uncertainty, some projects have been delayed. Over the past decade, we have actively worked to reduce our reliance on construction and demolition, resulting in less exposure in our hauling business and landfills. While this has presented some challenges, we do not experience the same volatility as other regions.
Faiza Alwy, Analyst
Thank you. You mentioned your excitement about efficiency initiatives in relation to the M&A. How quickly can you implement those initiatives within the M&A framework? Considering your guidance on the sales and EBITDA of the new acquisitions, what might the margins look like, and how fast can you move forward with these initiatives?
John Casella, Chairman and CEO
Typically, synergies develop over a few years. In many instances, there are existing contracts related to divestitures that need to be completed. Additionally, there are various organizational agreements with vendors that must be considered. You will start to see some impact in the first year, but most of the synergies will materialize over a two-year timeframe.
Ned Coletta, President
And delays in truck deliveries are definitely weighing on our ability to get synergies at the pace we want. But we're trying to do as much as we can through some of our vendor relationships. But, say in the mid-Atlantic, we're on track with our model, with the assets we purchased, the businesses from GFL last year. But we could be even a little further along if we've gotten some of our automated side load trucks, and we can start to deploy more efficiency into that market. It will come over time, and we've got great opportunities. But it'd be nice to be able to get truck deliveries a little faster.
Faiza Alwy, Analyst
Great. Thank you. Appreciate it.
Ned Coletta, President
You're welcome.
Operator, Operator
And our next question comes from Michael Feniger with Bank of America. Your line is open.
Michael Feniger, Analyst
Hi, guys. Thank you for taking my questions. I know you touched on it. Do you mind just giving us a sense of where you think the leverage ends this year? And just with such an active pipeline, Ned, can you kind of talk to us about, is it more on the smaller tuck-in side, larger? Just any context there would be helpful.
Ned Coletta, President
Yes. So, the pipeline kind of spans many different opportunities from excellent tuck-ins, several million dollars to tens of million dollars of revenue in existing markets to additional adjacencies that will either drive the expansion of the platform or maybe even some level of vertical integration. So there's a wide mix of opportunities that we're working on. As always, we never guide to acquisitions we haven't completed yet. As we said earlier, there's a few things we're working on right now that could potentially cross later this year into next year, but it's a little early to claim success on any of them. It's always a lot of work to get to the point.
John Casella, Chairman and CEO
No, we just did.
Ned Coletta, President
Yes, we just did have too. Yes, it's a good point, John. I mean that was a lot of months of work and really excellent. I think, Brad, you said pro forma, where are we at leverage-wise?
Brad Helgeson, CFO
Yes, we're about 2.9x pro forma. So, it's difficult to predict, obviously, where we'll be by year-end because it's going to be a function of the M&A activity. But the company has been very clear over a long period of time on how we intend to manage the balance sheet. We intend to keep leverage; it may go over a short period of time, but over time, we're going to look to keep leverage in the area of 3x or below. That remains the plan. We used some of the dry powder, certainly to close LMR and Whitetail. But, as I mentioned, we still have some dry powder available for the next deal that comes up in the pipeline. So, we're in a good position to keep executing on what's in front of us.
Michael Feniger, Analyst
That's helpful. And just with you guys doing these acquisitions in growth mode, I'm curious, I'm not asking for a guide on 2025, but do you feel like your CapEx intensity, is it going up as you guys kind of are building out this footprint and have projects? Just directionally, kind of wondering on that CapEx.
Brad Helgeson, CFO
I believe that if we focus on the upfront capital expenditures we distinguish in our non-GAAP metric, we can set that aside. Over time, the capital expenditure intensity of the business should decrease. I mentioned earlier that some changes are occurring due to the shifting mix of the business. As we expand geographically, we are mainly acquiring collection businesses, which require much less capital than landfills. Therefore, as measured by any chosen percentage of revenue, you can expect the capital expenditures to trend lower over time.
Ned Coletta, President
And one of the things we try to do when we buy businesses within our business plan is execute pretty quickly as we can to get fleet upgrades, facility upgrades, other areas like that. So, it is always a little heightened. All those upgrades are always considered in our pro formas, and we try to give visibility on them as well on our financials.
Michael Feniger, Analyst
Perfect. And lastly, regarding the price versus cost spread, you've mentioned 100 basis points. Looking ahead to next year, do you anticipate maintaining that spread? Will you need to increase prices since we're not observing cost deflation yet? Or do you foresee some areas where you can keep that spread intact because your cost analysis indicates that you may start seeing some deflation as we approach 2025?
Ned Coletta, President
The cost has remained stable. It decreased significantly over the past 18 months, and in the last six months, it has stayed stable but is slightly higher than our budgeted figures. I've mentioned this before, but it's worth repeating that we have a lot of pricing flexibility in our business. We thoroughly examined our pricing programs this spring to ensure they aligned with inflation levels in our industry and to determine if any adjustments were necessary. Fortunately, we are not solely reliant on CPI-linked metrics and contracts, allowing us to be adaptable and responsive. In late Q2 and early Q3, we made some adjustments to our pricing strategies for the latter part of the year because our inflation metric was somewhat higher than we anticipated. Therefore, we expect that spread to widen slightly in the second half of the year.
Michael Feniger, Analyst
Perfect. Thank you.
Ned Coletta, President
Thank you.
Operator, Operator
And the next question comes from Tyler Brown with Raymond James. Your line is open.
Tyler Brown, Analyst
Hi. Thanks for the follow-up here. This is actually, kind of goes back to Michael's question a little bit around CapEx. And it's a little bit on the cash flow add-backs. So I totally get why you add them back, but they are cash out the door. And I mean, next year, shouldn't most of those add-backs kind of fall off, like the FLSA payment, Southbridge, McKean, the veneer failure. Maybe some of the acquisition spend stays in there, but shouldn't the quantum of those add backs start to go down?
John Casella, Chairman and CEO
Yes. I mean, you listed some of the add-backs. Those will not recur, certainly. I think as the company is acquisitive and continues to grow, we'll be making upfront capital expenditures that we'll continue to categorize the way we have as post-acquisition CapEx. So, where that comes out for 2025 will be a function of the acquisition activity. Where we sit today, certainly, though on that line in particular, I would expect that number to be materially lower in 2025 than it was this year. Just with GFL and the Willimantic MRF retrofit is in that number. So, it is a chunkier number certainly this year than we might expect going forward.
Tyler Brown, Analyst
Yes. I'm not the brightest guy. So, what is the difference between the $46.5 million of acquisition CapEx and the $17 million of cash outlays from acquisition activities?
Brad Helgeson, CFO
Oh, yes. So, a little definitional topic here. So, the CapEx for acquisitions is, just like it sounds. It's new trucks. It's the Willimantic MRF as I said. It's facilities and things like that. The cash outlays for acquisitions are the acquisition expenses, so legal, due diligence, rebranding, things like that. That's just the cash outlay associated with that P&L expense.
Tyler Brown, Analyst
Okay. And then, John, on Southbridge, is there any update there? Is there any chance of a reopening of that site?
John Casella, Chairman and CEO
I would say no, Tyler. I think that we're in the process and have closed that site out. And I would not anticipate anything coming back at Southbridge.
Tyler Brown, Analyst
Okay. Okay. Thought that was maybe an outside chance at one point. And then last thing, Ned. So, I just get asked this question quite a bit. But are you guys seeing any impact from increased, let's call it, takeaway capacity in the market via rail? I mean, it sounds like rail volumes really are ramping up at some of your competitors. But then again, it sounds like a lot of those are internal tons. But I'm just curious if you're seeing any impact on the fight for tons. And it sounds like you're holding the line on price, but just any broader thoughts about that dynamic?
Ned Coletta, President
Yes. As capacity exits the market, the process will not be straightforward. Many are attempting to forecast future developments. As you know, several sites in the Northeast are expected to close in the coming years, and there are additional sites that may face closure. Some competitors are increasing their rail capacity from the Northeast to locations such as Ohio and the Southern U.S., which has recently impacted volumes in the Northeast. Looking ahead to the next couple of years, the situation may not change significantly due to the potential for further capacity reductions, which is partly why we expanded McKean. However, this situation has not affected our pricing and we are not seeing a significant loss in tons. MSW has remained stable at our locations, and we haven't experienced growth in that area either.
John Casella, Chairman and CEO
It's something more of a C&D impact more than MSW.
Ned Coletta, President
Yes. But it's definitely, as some additional capacity has come online, looking to the future, some of that waste has been moving out of the Northeast. It's taken a tiny bit of pressure off the system in the near term. But you look out over the next couple of years and there could be a lot of pressure still, depending upon which sites stay open and close.
Tyler Brown, Analyst
Yes, perfect. Okay, thank you so much, guys.
Ned Coletta, President
Thank you.
John Casella, Chairman and CEO
You're welcome.
Operator, Operator
Our next question comes from Timna Tanners with Wolfe Research. Your line is now open.
Timna Tanners, Analyst
Hi, good morning, and happy Friday.
John Casella, Chairman and CEO
Good morning, Timna.
Timna Tanners, Analyst
I would like a bit more detail. You touched on some commercial strategies in the script, possibly related to the usual mix improvements from shedding. However, I'm curious if there's anything new regarding the pursuit of a better mix and maintaining pricing, whether that’s a new approach or just a continuation. I also have similar questions about targeting larger industrial customers—are there any new developments on that front?
John Casella, Chairman and CEO
I believe there is a significant opportunity in the Mid-Atlantic region for our resource solutions group to engage with industrial accounts. There is potential for growth in providing waste and recycling services to larger organizations focused on sustainability. Our team is well prepared for this, and there are considerable opportunities in the Mid-Atlantic. As mentioned before, some changes in the mix are expected since the region is primarily driven by collection and recycling rather than disposal. Overall, we feel confident about our position in the Mid-Atlantic, where there is a substantial amount of disposal capacity, currently encompassing 12 facilities, which will naturally lead to some changes in the mix.
Ned Coletta, President
And you see it again this quarter, we traded price for volume in the subscription residential segment. We continue to see quality, density in our market. So the profitability margins continue to improve there. So, it's the right decision-making in that segment. But we are winning, to John's point, like in segments like institutional colleges and universities, large industrial... Medical centers, these really complex accounts that require differentiated services and really are seeking to even have kind of like a consulting approach where they have sustainability plans, circularity goals, and they're really partnering with our team to try to change some of their process and make the right investments. That's one area we win really well. We're not winning on low cost; we're winning on service.
Timna Tanners, Analyst
Okay, that's helpful information. I just want to follow up on the M&A question. Are you noticing any changes in what potential targets are asking for in terms of price and the multiples they are looking for? Thanks again.
Brad Helgeson, CFO
I don't think that there's any changes. I think that multiples have been full multiples for, I would say, the last two years. But I wouldn't characterize it as a change from where things have been. Multiples have been full for at least two years now, 1.5 years to two years. No real change there. I think that the one thing that is very interesting for us is the number of opportunities that we have is very significant. There's an awful lot of activity still, even with the growth that we've had over the last year, 1.5 years, there's still a significant amount of opportunity out there. And each time we go and look at our pipeline, it seems like the numbers don't change much in terms of the total opportunity that we're looking at.
Timna Tanners, Analyst
Interesting. Okay. Thanks again.
John Casella, Chairman and CEO
Thank you for joining us this morning. Hope you have a great weekend and look forward to discussing our third quarter 2024 earnings this fall. Thanks, everybody, and have a great weekend. Thank you.
Operator, Operator
This does conclude today's conference call. Thank you for participating. You may now disconnect.